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09 Nov

The Warehouse Challenges Threatening Your Bottom Line – And How to Beat Them

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Author: Kerrin Arens

Rising business rates. Fluctuating currency value. Wavering consumer spending. These are just some of the cost pressures facing businesses. As a result, executives are seeking savings from every element of the supply chain including warehouses and DCs.

As a warehouse leader asked to do more with less, which of the following costs should you control first: space, labour or equipment? With your workforce the single biggest operational cost, it makes sense to start there. Particularly as multiple threats – like just-in-time delivery requirements, increased demand and intensity and fluctuating worker numbers – have the potential to erode already-squeezed profit margins. 

With the retail environment shifting rapidly and significant political, economic and social change on the horizon, we explore the challenges facing warehouse and distribution centre (DC) operations. And we reveal how warehouse workforce management technology can counteract all these problems, control costs and deliver on additional fronts too. 

The Escalating Pressures Costing Warehouse Operations

Even before the pandemic, the increased demand for warehousing and DC services created job vacancies and started a war on talent as the demand for human resources outstripped supply. In response, pay for warehouse jobs increased by 6% between 2016 and 2017 in the US. 

More recently, warehouse recruitment has shot up as a result of the rapid shift to online shopping caused by COVID. Amazon decided to recognise its employees’ efforts by increasing its UK warehouse operatives’ and delivery drivers’ wages by £2 per hour. A significant increase in an industry where margins are notoriously tight. 

As pay rates have risen, some businesses have offset the costs by cutting employee benefits or premium pay for unsocial hours. Others – like UK grocer Tesco – have removed performance-related bonuses and boosted salaries to a more market-competitive rate. 

And increasing rates of pay aren’t the only cost pressures facing the sector:

  • Sustainability – Amazon aims to make 50% of all shipments net zero by 2030. And, where Amazon leads, the rest of the industry is likely to follow requiring a cash surplus for technological investment.
  • Decreasing consumer loyalty – repeat business is cheap business. But as consumers become less loyal to brands, the cost of attracting new customers impacts profit margins. 
  • Brexit and COVID – political uncertainty and global lockdowns threaten the economy and its supply chains. Businesses stockpiled in March 2019 ahead of one Brexit deadline and so did consumers in response to COVID. With Brexit and COVID lockdowns looming, will there be even more pressure on warehouses to hold, manage and distribute mountains of additional stock?

Against this backdrop, warehouse and DC operations must find ways to do more with less. And that inevitably means getting more from their employees. But unlocking additional long-term value from human resources relies on understanding current and future workforce management challenges facing warehouse and DC operations. 

Business Forecast Inaccuracies Cause Expensive Issues for Warehouses

Increasingly volatile forecasts – particularly around ecommerce – make labour planning very difficult. Too many people on the shop floor and your business is paying over the odds on labour. Too few and you risk reduced quality standards and reputational damage. Which makes workforce planning a very tricky balancing act indeed.

This situation is exacerbated by disconnected software, in particular business planning and workforce management systems. As the volume and mix of orders shift rapidly, there’s an increasing need to be able to re-plan labour requirements within the day. But, by the time one system has caught up with the other, the opportunity to react has been missed. With so much forecast fluctuation, minimising labour over or under-provision is a major cost-saving opportunity. 

Investing in Automation 

As cost-effective automated warehouses become increasingly common, the remaining roles – filled by people – are becoming more complex. This added complexity means you’ll need to upskill your workforce. And it’s likely that more difficult jobs will mean higher pay rates too.

“Automation will hit your business with a cost double-whammy. One for buying and installing the robotics, one for training and higher wages.” Chris Love, Managing Partner

If your business operates on very tight margins you might not have sufficient income to invest in this kind of technology. So there’s only one solution – control your current workforce costs and optimise each individual’s productivity to improve your profits. Then you’ll be in a better position to explore whether automation and/or robotics can save you even more money. 

The Compliance Risks That Could Cost You Dear

Recent government research into warehouse operations has highlighted a number of areas in which businesses are at risk of employment claims. From poor health and safety practices to failing to pay people properly, administrative errors are placing warehouses and DCs in danger of legal action.

With the UK’s new points-based visa system beginning on 1st January 2021, employers will soon have even more legislation to adhere to. With around 25% of the UK’s warehouse workforce made up of non-UK nationals, this is a major area of compliance risk. Get it wrong and your business could be saddled with associated financial and reputational costs including:

  • The suspension or revocation of the licence required to employ overseas workers making it impossible to attract overseas talent.
  • The potential for civil penalties and criminal convictions for illegal working.

Controlling Recruitment Costs Through Employee Retention

As entry-level retail jobs become entry-level warehouse jobs, hiring patterns are shifting with greater warehouse recruitment taking place:

  • In the UK
    • 2008 to 2018 – up 214% versus average employment growth of 7.5%
    • May to August 2020 – vacancies up 66%
  • In the US
    • 2007 to 2017 – up 90% versus average employment growth of 12%

Some of these jobs will be filled by people who have been made redundant. Which creates the potential for additional risk of high levels of employee turnover, particularly where warehouse work is not somebody’s first job choice. In addition, warehouse workforces are increasingly made up of younger people. And this means different needs must be met. Or risk high volume employee turnover with all its associated costs. 

Young people don’t always want a career for life. And those who’ve been made redundant might think they’ll leave at the first opportunity. But giving employees greater choice over where and when they work, as well as what they do, can provide them with a satisfying job. And one that gives them the flexibility to spend more time with their families is more likely to be a job they’ll stick with.  

Workforce Management and Labour Planning Software – A Major Cost-Saving Opportunity 

The warehouse industry faces a plethora of costly challenges. But what if controlling the biggest cost of all – labour – could boost the bottom line in more ways than one? 

That’s where workforce management and labour planning software comes in. Retailers have long used these systems to control costs and boost productivity for frontline employees. But where warehouses are concerned, it’s an untapped technology that will save labour costs and maximise individual workers’ productivity. 

Here’s a taste of the ways labour planning and workforce management software solves the challenges outlined above:

  • Meet demand with visibility and reporting – integrated workforce management and planning software empowers your planners with a single joined up view of forecasts, demand and labour availability leading to more efficient and effective scheduling.
  • Advanced scheduling – full workforce visibility means you can make optimise the people and skills in your warehouse and maximise profit potential. Decrease the need to hire flexible workers and minimise recruitment costs and agency fees.
  • Performance tracking and reporting – clean sheet analysis enables you to establish actual warehouse activity levels and volumes and determine the average processing time. Set performance standards enable managers to rapidly identify and deal with efficiency problems. With a greater reliance on agency workers, this will ensure you only invite the most productive people back.
  • Free management time – time and performance-tracking software ensure wages are calculated and paid correctly reducing the amount of time managers spend dealing with administrative errors. And increasing the time they can spend on the shop floor supporting and engaging colleagues.
  • Complete compliance – legislative requirements are built into the software giving you the confidence that your workforce schedules are legal. 
  • Improved profit – highly effective workforces improve picking and packing accuracy and customer service. You retain more clients and improve your bottom line.
  • Additional cost savings – e-commerce warehouses also boost profit margins by decreasing problems like having to re-send orders that have been incorrectly fulfilled. Or minimising the need to refund customers’ premium delivery fees on later orders.

Warehouse and DC operations have long faced a costly war on talent that has ramped up wages and eroded profit margins. The key to thriving in this context is a new approach to workforce management. One that controls costs while boosting productivity and profits. From tracking performance and improving planning and scheduling to ensuring a multiskilled, compliant workforce without investing huge amounts of time in administration. Workforce management and labour planning software is the solution to your costly people problems.  

Easy Cost Cuttings in Your Warehouse

Download our free e-book to find out how warehouse labour planning and workforce management will revolutionise your warehouse and DC operations.

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